Published 7:47 pm, Friday, December 4, 2009

WASHINGTON - The hot-button issue of climate change spurred Bruce Smith, CEO of refiner Tesoro Corp., to leave his San Antonio headquarters and come to the nation's capital this September to lobby Congress for the first time since he took the post 14 years ago.

Smith's inaugural lobbying trip was motivated by what the oil industry has declared as no less than a life-or-death issue: climate change proposals to make refiners pay for both the greenhouse gases released from smokestacks when they process crude and the emissions expelled from vehicle tailpipes and jet engines when their fuels are burned.

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Smith also exhorted Tesoro's customers and employees to flood Capitol Hill with calls, letters and e-mails opposing the measures - another first for the San Antonio-based company.

Although Tesoro has done face-to-face lobbying on policy issues, "this is the very first time we've really tried to involve the entire work force," company spokesman Lynn Westfall said. "We really see cap-and-trade or climate change legislation as a make-or-break (prospect) for us."

From wood-paneled Senate hearing rooms to eye-catching ads at gasoline filling stations, refiners have mounted an aggressive, high-profile campaign against pending legislation designed to fight global warming. Both Valero Energy Corp., and Tesoro - two of the nation's largest independent, nonintegrated refiners and both based in San Antonio - have rolled out Web sites against the legislation and paid for ads on top of company-owned gas pumps warning customers about the potential price tag of congressional plans to cap carbon dioxide.

The industry also is spending record amounts on lobbying to combat the climate change legislation, unrelated tax proposals and other initiatives that energy companies say would be bad for business. According to the nonpartisan Center for Responsive Politics' analysis of federal disclosure reports, the oil and gas industry spent $120.7 million to lobby the government during the first nine months of this year - and it is easily on track to beat the 2008 total of $132.1 million.

Industry officials agree that their top lobbying priority is the global warming legislation that passed the House narrowly in June. The bill is now in the Senate, where six committees are tasked with honing the measure before a final version is ready for floor debate sometime next year.

Both the House-passed bill and the Senate measure sponsored by Barbara Boxer, D-Calif., and John Kerry, D-Mass., would place steadily tightening limits on carbon dioxide and other greenhouse gas emissions. Polluters could buy and trade a limited supply of allowances to release the gases or to offset their emissions by investing in carbon-cutting programs.

The House plan would give refiners 2 percent of the valuable allowances annually for free during the initial years of the program under a hard-fought concession that bill supporters granted Texas Democratic Reps. Gene Green and Charlie Gonzalez. The Senate bill would give away 2.25 percent of the allowances to refiners.

Although refiners ultimately could meet new greenhouse gas limits by creating cleaner-burning fuels, industry leaders say it will take time to develop alternative, lower-emission options - long after carbon dioxide caps kick in.

"We've got smart people that can figure out how to bring some of these technologies along, but when you've got deadlines like 2012, 2014 and 2020, and when the technology is not there to replace gasoline," it's "scary," said Jim Greenwood, Valero's vice president for governmental affairs. "The technology isn't there."

Boxer said the free allowances would "lessen the blow on refiners" while they develop cleaner-burning fuels.

"We do have a lot of allowances going in that direction," Boxer said. "We think (refiners are) going to be able to cover it."

Still, industry officials complain that free allowances of 2 percent to 2.25 percent would cover only about half of the annual emissions from the refining process, much less the emissions produced when consumers burn their fuels in cars, trucks and planes. All told, refiners ultimately would be responsible for 44 percent of U.S. greenhouse gas emissions, according to the American Petroleum Institute.

At a projected cost of $20 per allowance to emit a ton of carbon dioxide, the National Petrochemical and Refiners Association estimates the industry would be forced to pony up $4.1 billion for emissions from refining facilities and $63 billion for emissions from consumers using their products.

Valero CEO Bill Klesse called the price tag "staggering" and said it would be "devastating for the American petrochemical and refining industries."

At $20 per ton, Valero estimates it would be responsible for an additional $6 billion a year - including $45 million to $92 million for its Corpus Christi refinery.

Bill supporters and industry leaders expect much of the allowance cost would be passed on to consumers in the form of higher prices at the pump - an estimated 77 cents more per gallon, according to API.

Bill backers say the price increase will drive customers to cut their transportation emissions by carpooling, spending less time behind the wheel and buying more fuel-efficient cars.

But U.S. energy companies say they can't pass on all the added allowance costs and still remain competitive with foreign refiners, which would not have to pay for emissions from the refining process.

The end result, said Marvin Odum, president of Shell Oil Co., is that refiners would move their U.S. operations offshore.

Even without the prospect of new carbon emissions costs, the forecast is bleak for refiners that already are suffering from a drop in demand during the recession and the costs of storing rising inventories.

On Nov. 20, Valero announced it would shut down its 210,000-barrel-per-day refinery in Delaware City, Del. - an announcement that came a month after Sunoco decided to idle its Eagle Point plant in Westville, N.J.

And on Friday, Bloomberg reported that Klesse said the company is considering selling its refinery in Paulsboro, N.J. While a potential buyer did look at the plant previously, those discussions are no longer active, Klesse said.

In addition, Valero is looking to buy additional ethanol plants because they provide a good supplement, Klesse told Bloomberg in an interview at the Platts Global Energy Awards.

As independent, nonintegrated refiners, Valero, Tesoro and Sunoco are among the most vulnerable under the climate change legislation because they do not have revenue from oil and natural gas production to offset higher refining costs, unlike integrated energy companies such as ConocoPhillips and Exxon Mobil Corp.

Meanwhile, the lobbying campaign continues.

"We can't worry about a sprained ankle or stitches on the knee," Greenwood said, when the climate change legislation "is potentially a terminal disease for us."